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Two firms, Firm 1 and Firm 2, sell an identical product and must simultaneously decide whether to set a high price or a low price. Their potential profits are shown in the matrix below, with Firm 1's profit listed first in each pair.
| Firm 2: High Price | Firm 2: Low Price | |
|---|---|---|
| Firm 1: High Price | ($100, $100) | ($0, $0) |
| Firm 1: Low Price | ($0, $0) | ($50, $50) |
Why is the outcome where both firms choose a 'High Price' considered a stable equilibrium?
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